Throughout the 'peace process', when Palestine tries to make any real progress on independence, aid is cut as a warning.

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Once again, Palestinians are being punished for daring to exercise a choice.

It happened before in 2006, when they took part in what was deemed to be the wrong kind of democracy and picked the wrong (Hamas) government. That mistaken execution of free will caused the international community to close its funding tap - cutting Palestinian aid and salaries.

Now, there are penalties for taking another 'wrong' turn, despite repeated threats and warnings: US congress is blocking US $200 million intended for the Palestinian Authority (PA), which persisted with its UN statehood bid in the face of US disapproval. Few things typify international complicity in stalling Palestinian aspirations like this on/off money switch. The current cut in cash will affect health and social projects - but not,

Palestinians have tried many routes to ending Israel's occupation, and the bid for statehood at the UN is yet another that has been thwarted [GALLO/GETTY]

Once again, Palestinians are being punished for daring to exercise a choice.

It happened before in 2006, when they took part in what was deemed to be the wrong kind of democracy and picked the wrong (Hamas) government. That mistaken execution of free will caused the international community to close its funding tap - cutting Palestinian aid and salaries.

Now, there are penalties for taking another 'wrong' turn, despite repeated threats and warnings: US congress is blocking US $200 million intended for the Palestinian Authority (PA), which persisted with its UN statehood bid in the face of US disapproval.

Few things typify international complicity in stalling Palestinian aspirations like this on/off money switch. The current cut in cash will affect health and social projects - but not, it is said, the PA's security commitments (coordinated with Israel). In other words, the pinch is designed to cause Palestinian suffering - but is calibrated so as not to upset Israeli concerns, or totally derail the stagnating status quo.

It's a fine calculation and one over which Palestinians are losing patience - on more than one occasion, PA officials have threatened to pull the plug on their limited governance. Between the Israeli occupation and a dependence on foreign aid - the withdrawal of which is routinely used as threat - it would hardly be surprising if PA officials concluded that their compromised remit to indefinitely manage a stunted Palestinian state-in-waiting isn't worth the headache.

Israeli officials know there's a tipping point. That's partly why prime minister Binyamin Netanyahu, not known for acts of generosity toward his Palestinian counterpoints, was in US congress last month, explaining that cutting PA funds entirely wouldn't be a good thing.

Foreign funding is part of the Oslo accords and premised on the creation, through peace talks, of a Palestinian state. In this context, the EU is a key financial partner to the PA - but, even with the Eurozone in crisis, with one official saying that aid levels are "unsustainable", and worries over who will plug the gap left by cuts in US funds, there's a core commitment to keep the prop-up money flowing.

Palestine: The aid cash cow

Most Palestinians have lost faith in the US as an 'honest broker', especially after Obama has promised to veto their bid for statehood in the UN [GALLO/GETTY]

The cash goes hand in hand with an insistence on stalemated negotiation - reiterated by the Middle East quartet in recent days - and that's the best it gets from the international community. Time and again, we've seen that there is no political will to drive the alternative: pressure on Israel to end its military occupation and put a stop to the Jewish settlements that are decimating the geography of a Palestinian state.

In any case, this contrived impasse is a cash cow at every level. On the ground, scores of international workers are employed in a foreign aid sector that should not exist, since Palestine, free from occupation, has ample brainpower and resources to power its own economy.

"Aid money ... almost all flows back to companies in the donor nation."

A report released last month showed that aid money, because of the conditions on how it is spent, almost all flows back to companies in the donor nation - making places like the Palestinian territories a channel through which countries turn state aid into corporate gain.

Meanwhile, on the phantom peace track, there's ample opportunity for people like Tony Blair, accused of using his Middle East 'peace envoy' title to secure money-making schemes, as has recently been revealed.

Running through his deals and the conflict of interest they may represent, a recently aired Dispatches report on British Channel 4 TV noted that its easy to see how Blair benefits, but "more difficult to see what the Middle East peace process gets out of Tony Blair". (The peace envoy has since dismissed these allegations as "untrue and absurd".)

Israel's occupation, perpetuated in part by the tired Oslo formula of aid-plus-asymmetric-talks, is fuelling profits for scores of companies.

Among them are the American arms manufacturers that benefit from American state money, given as aid to Israel and then spent on US weaponry. And the Israeli arms and surveillance firms that test cutting edge equipment on occupied Palestinians, securing a position as market leaders. At so many points in this money trail, state funding is funnelled into corporate coffers, all fundamentally enabled by the international community's approach to the Israeli-Palestinian conflict.

Now, the Palestinians' UN bid for statehood, and reactions to it, have brought this conditional-aid-plus-talks doctrine into sharp focus. We can see all the strings. And, just as clearly, we can see how they're being pulled to strangle Palestinian hopes.

Rachel Shabi is a journalist and author of Not the Enemy: Israel's Jews from Arab lands.

The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.

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